Pandemic-related tax changes means many haven’t seen returns

It may be more than halfway through 2022, but accountants are steal dealing with the 2021 tax return season thanks to pandemic related changes and backlogs with the Internal Revenue Service. 

Ruthann Woll, a tax partner and CPA with RKL LLP, said millions of people have still not received their rebate checks and some have not yet filed their return because of some of the reconciliations that needed to be done because of COVD relief stimulus from the federal government. 

“We’re dealing with the reconciliation of the third recovery rebate payment of $1,400, which was made in January of 2022,” she said. 

She said the new advanced child credit also needed to be reconciled on families’ tax returns. 

Stephanie Kane, senior manager in RKL’s tax services group, said the same is true for many businesses. 

Tax incentive programs due to Covid-19, such as PPP forgiveness and ERTC credits, impacted returns again this year. PPP forgiveness was tax free money, while ERTC credits actually increased taxable income for businesses. For that reason, Kane said careful planning is important for businesses filing their tax returns. 

“Certain tax rules changed for 2019 and 2020 were reinstated for 2021,” said Kane. “Excess business loss limitations and interest expense limitations had been lifted to help with cash flow for Covid-19. They are now back in place.” 

The need to address many of those reconciliations and tax changes caused many to file for deferment, to give them more time to work out the implications. 

Woll said the IRS had 54 million tax returns filed by the original April deadline but expects around 160 million returns to be filed by October of this year. 

Woll said those deferments have added to a number of other problems the IRS has been dealing with in handling the late and more complex returns, the IRS still hasn’t processed about 2 million returns that were expected to be refunds. 

Part of the problem, she said, is that the IRS, like many employers, is dealing with a staffing shortage. 

However, the IRS has been hiring more workers to help deal with the backlog. 

But the IRS is also facing problems with the increase in fraudulent returns that began during the pandemic, a similar problem that the Department of Labor & Industry had with unemployment compensation claims. 

“The last two years it’s been a really crazy environment to help the taxpayers through,” said Woll. 

However, Kane said things should be a little easier heading into the 2022 tax season. 

“Looking to the 2022 tax year a lot of the same things will impact our tax season coming up,” she said. “Practitioners should be working with clients on their quarterly estimates to make sure these items are being accounted for correctly and that there are no surprises for owners on these specific items. We don’t have significant tax overhaul concerns for 2022 at this point. Just making sure we are adjusting and taking into consideration the items we are aware of and their impact on taxes and cash flow.”